Tronc Schemes, HMRC & The Employment (Allocation of Tips) Act 2023
A Tronc Scheme is an organised payment arrangement that allows businesses to fairly distribute tips, gratuities and service charges received from customers to their staff through payroll, without incurring National Insurance contributions for either employers or employees.
A Tronc Scheme is usually operated to ensure that qualifying members of staff, including those who would not typically receive tips directly, are compensated fairly.
The person responsible for managing a Tronc Scheme, known as a ‘troncmaster’ can be appointed either from within the business or externally. However, they must maintain independence from the business.
The Employment (Allocation of Tips) Act 2023 which comes into force in October 2024, imposes upon employers the duty to collect and distribute all tips etc. fairly between staff. A Tronc Scheme can assist employers comply with the requirements of the Act.
Tim Thompson of KANGS comments generally upon the Act and the operation of a Tronc Scheme.
The New Legislation
The Employment (Allocation of Tips) Act 2023 provides as follows:
Qualifying tips, gratuities and service charges.
Employer received tip being an amount paid by a customer of an employer by way of a tip, gratuity or service charge:
- received upon its payment or subsequently by the employer or an associated person or
- received upon its payment by a person under a payment arrangement made between the employer and that person.
Worker received tip being an amount paid by a customer of an employer by way of a tip, gratuity, or service charge:
- received upon its payment by a worker of the employer and
- is not subsequently received by the employer or an associated person.
A payment arrangement is one between an employer and another person under which payments made by customers of the employer are to be received by the other person instead of the employer.
Effectively, the new Act ensures that 100% of qualifying tips, less statutory deductions, must be distributed fairly to staff.
When tips etc must be dealt with
The employer must ensure that a qualifying tip, gratuity or service charge is allocated and paid no later than the end of the month following the month in which the tip, gratuity or service charge was paid by the customer.
Varying forms of Tronc Schemes
A Tronc Scheme may be formulated in one of several formats, with the most common being:
- Equal distribution – All employees, regardless of role and responsibility are entitled to an equal share of all tronc receipts.
- Points-based system – The troncmaster may distribute tronc receipts having regard to job roles, customer feedback or hours worked.
- Performance-based system – Designed to incentivise qualifying employees, distribution may be linked to performance targets.
The Role of Troncmaster
The employer must advise HMRC details of the person who is appointed as troncmaster.
The role of troncmaster carries considerable responsibility and will probably require support and training as, amongst other things, an understanding of the business’s PAYE system is essential.
The troncmaster must ensure that all relevant staff are fully apprised of the nature of the scheme being operated and its rules and that it is applied fairly.
The troncmaster:
- pays employees tips etc. through a separate payroll,
- reports all transactions to HMRC,
- must maintain PAYE records separate from those of the employer,
- is personally responsible for all aspects of operating a PAYE scheme and may be held responsible for any failure to deduct tax as appropriate,
How Can We Assist?
HMRC regularly conducts reviews of employers’ PAYE records and those relating to Tronc Schemes.
Should HMRC suspect that any form of tax has not been properly accounted for and paid, civil proceedings for recovery may be issued against any party considered culpable including the business or any appointed troncmaster.
Additionally, when considered appropriate, HMRC may pursue criminal proceedings.
Should you become subject to a HMRC investigation or proceedings of any nature it is essential that legal assistance is sought immediately.
The Team at KANGS provides vast experience gained from supporting clients throughout both HMRC Investigations and court proceedings, both civil and criminal, over many years and would be delighted to hear from you.
If we can be of assistance, please do not hesitate to contact us using the details below:
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through live conferencing or telephone.
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